Fannie Mae and Freddie Mac eye mortgage bail-out business

American mortgage finance houses Fannie Mae and Freddie Mac have each thrown
their hat into the ring to be considered to manage the mortgages the US
Treasury will own as part of its $850bn (£495bn sterling) bail-out of the
American banking system.

Fannie and Freddie, which were all but nationalised at a cost of more than $220bn in early September, have each bid to manage part of what will become a sizeable national mortgage book.

The US Treasury, led by Hank Paulson, earlier this month said it is seeking a large financial company to manage the mortgage-related securities it purchases from various banks, and another company to manage whole loans.

The aim of the scheme – the Troubled Assets Relief Programme (TARP) – is to buy troubled and struggling mortgage assets from the books of banks, and place them in a giant melting pot, where they are likely to sit until maturity.

Those banks which sell into the TARP will do so at somewhere between market and maturity rates, but will benefit from not having to worry about the exact worth of such assets.

In the long-term, the Treasury should benefit from the TARP, because the bulk of the mortgages it buys should continue to maturity, potentially outweighing the costs of likely defaults within the portfolio.

Federal housing regulator James Lockhart would not comment on whether Fannie and Freddie have applied for Treasury work, but did say: “They ... have some skills in this area," adding that they had many skills required to manage mortgage assets.

Meanwhile the collapse and subsequent federal takeover of the pair will be examined by the US Congress – albeit two weeks after the US Presidential election.

The House Oversight and Government Reform committee is to grill a number of former senior directors including ex-chief executives from both mortgage companies at a hearing on November 20, a fortnight after the November 4 election.